Hero MotoCorp (NSE:HEROMOTOCO) sheds ₹23b, company earnings and investor returns have been trending downwards for past five years

By
Simply Wall St
Published
May 14, 2022
NSEI:HEROMOTOCO
Source: Shutterstock

Ideally, your overall portfolio should beat the market average. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term Hero MotoCorp Limited (NSE:HEROMOTOCO) shareholders for doubting their decision to hold, with the stock down 31% over a half decade.

If the past week is anything to go by, investor sentiment for Hero MotoCorp isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Check out our latest analysis for Hero MotoCorp

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Looking back five years, both Hero MotoCorp's share price and EPS declined; the latter at a rate of 8.4% per year. Notably, the share price has fallen at 7% per year, fairly close to the change in the EPS. That suggests that the market sentiment around the company hasn't changed much over that time. So it's fair to say the share price has been responding to changes in EPS.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
NSEI:HEROMOTOCO Earnings Per Share Growth May 14th 2022

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Hero MotoCorp's TSR for the last 5 years was -20%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Investors in Hero MotoCorp had a tough year, with a total loss of 9.9% (including dividends), against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Hero MotoCorp better, we need to consider many other factors. Take risks, for example - Hero MotoCorp has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Hero MotoCorp is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

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